CIFM-Funded Research Initiatives

Gary A. BallingerAmanda P. CowenJeremy MarcelWhat's in It for Me? Professional Penalties and Directors' Incentives to Prioritize Succession Planning

A wealth of governance research has examined CEO successions and the negative organizational consequences that arise when boards fail to effectively manage leadership transitions. Despite those findings, empirical and anecdotal evidence indicate that failed successions are still quite common. In this paper, McIntire faculty members Jeremy MarcelAmanda Cowen, and Gary Ballinger investigate whether fear of professional penalties motivates directors to prioritize their succession responsibilities. Prior research has found such professional repercussions to be important in motivating directors to attend to other oversight tasks. Toward this end, the researchers examine whether a particular class of failed successions – those in which the board elects to hire an interim CEO – triggers elevated director turnover. They theorize that, all else equal, interim CEO successions will be viewed as governance failures by external audiences. As a result, they expect that these succession events will prompt higher rates of board turnover than those observed following non-interim successions. However, they also anticipate that this relationship will be moderated by situational characteristics (e.g., surprise CEO departure, dynamic industry environment) that complicate succession planning and make audiences more accepting of a board’s decision to rely on an interim CEO. Controlling for a variety of factors, including firm performance, the study's analysis of 439 successions at publicly traded U.S. firms provides support for these arguments. The authors discuss the implications of their findings for corporate governance, succession planning, and current regulatory efforts to align directors’ professional outcomes with firm outcomes.

Marcel, Ballinger, and Cowen received CIFM funding to purchase the Board Analyst database from The Corporate Library for use in their research. 

Michael GallmeyerBeliefs about Inflation and the Term Structure of Interest Rates

How does investor disagreement about inflation impact bond prices? In research with Paul Ehling (BI-Oslo), Christian Heyerdahl-Larsen (London Business School), and Philipp Illeditsch (The Wharton School, University of Pennsylvania), McIntire Associate Professor Mike Gallmeyer shows that bond markets are significantly impacted when investors disagree about possible future inflation outcomes. Their findings highlight an additional channel faced by central banks where the nominal side of the economy can impact the real side of the economy. Furthermore, the impact can be significant, as the authors show that increased disagreement about inflation increases both real and nominal yields as well as bond volatilities.

Gallmeyer received CIFM funding for to support travel and interaction with his coauthors.

Patrik SandasSubprime Delinquency, Default, and Prepayment 

The recently passed Dodd-Frank Act will alter the financial landscape in ways that will we can only begin to appreciate. Antje Berndt (Tepper School of Management, Carnegie Mellon University) and McIntire Associate Professor Patrik Sandås study how one important rule change will affect mortgage markets: Dodd-Frank bans charging penalties charged on prepayments of qualified residential mortgage loans. Typical home mortgages are pre-payable without any additional fees, but the freedom to pre-pay is an option that does not come for free. In fact, some observers have argued that the option to agree to a prepayment penalty may make mortgages more affordable to people with poor credit. The project investigates the prevalence, pricing, and outcomes for mortgages with prepayment penalties of different length. The study uses New Century Financial Corporation’s loan database to identify the existence and scope of prepayment penalties for loans at origination between 1997 and 2006. It combines this origination data with data from, a service that tracks the performance of securitized loans, including delinquencies, defaults, and prepayments. The research will shed light on this controversial topic by showing how borrower behavior and broker compensation evolved with different prepayment, interest rate, and housing price regimes. One output from this project includes the publication "How Subprime Borrowers and Mortgage Brokers Shared the Pie," Real Estate Economics, 2015 (A. Berndt, B. Hollifield, and P. Sandås).

Berndt and Sandås received CIFM funding to purchase the New Century loan data and databases.

Patrik SandasLatency Arbitrage when Markets Become Faster

McIntire Associate Professor Patrik Sandås, Andrew Todd (UVA School of Engineering & Applied Science), and Burton Hollifield (Carnegie Mellon) measure the incidence of latency arbitrage for cross-listed stocks around the time of an exogenous shock that made the markets faster. Our sample is from NASDAQ Nordic and consists of Nordic blue chip firms listed and traded in multiple markets. We document a sharp decline in the incidence of cross-market arbitrage opportunities across the Nordic markets for cross-listed stocks from 2009 to 2010 and later. Over the five-year sample period 77% of the observed cross-market arbitrage opportunities occurred in 2009 and 13% in 2010 and the remaining 10% spread over the last three years. The inside spread declines by, on average, 14.5 basis points or 53% from 2009 to 2013. Our results point to significant improvements in market efficiency and market quality as a result of the switch to a faster trading system.

Sandås, Todd, and Hollifield (Carnegie Mellon) received CIFM funding for research support, including data (Reuters, Olsen & Associates), conference travel, data cleaning, and coding assistance.